Microsoftis re-evaluating its $31-a-share offer for Yahooin light of worsening market conditions, a person familiar with the situation told CNBC on Friday.
"Microsoft believes the window of opportunity is now," the person said. "And it's up to the Yahoo board to engage in meaningful negotiations. Microsoft will only be patient to a point."
Shares of Yahoo dropped almost 5 percent in extended electronic trading Friday after the news.
Microsoft has been repeatedly trying to engage Yahoo's board in discussions since it made its initial offer, a source inside Microsoft said, but the software company is frustrated that Yahoo hasn't taken talks seriously.
Yahoo rejected Microsoft's initial offer, saying it "substantially undervalues" the company. Microsoft made its $44.6 billion bid for the Internet company on Jan. 31. The offer is now worth about $42 billion.
Microsoft now is sending a message to Yahoo that the Internet portal's stock is vulnerable if Microsoft withdraws its offer, the company source said.
No Increase, Microsoft Says
Microsoft sees no reason to increase its bid for Yahoo, two months after it made a $44.6 billion offer to buy the Internet company, people familiar with Microsoft's plans said on Monday.
"Why would Microsoft bid against themselves? The company sees no reason to bid against itself," one of the people said. The people requested anonymity because they are not authorized to speak on behalf of the company.
A Yahoo spokeswoman declined to comment. Microsoft and Yahoo executives have met once to discuss a potential merger since Microsoft made its $31-a-share for Yahoo on Jan. 31, other sources told Reuters earlier.
Although some technology blogs have speculated that Microsoft is planning to raise its bid, one person familiar with the company's plans said Microsoft does not feel the need to pay more because no viable strategic alternatives have emerged.
Since Microsoft's offer, Yahoo has held talks with Rupert Murdoch's News Corp and Time Warner's AOL division, sources have told Reuters.
Microsoft also feels comfortable biding its time because a recent roadshow by top Yahoo executives, intended to shore up support among U.S. institutional investors and prove the bid was too low, was "underwhelming," one of these people said.
- Reuters contributed to this report.